Even people who avoid debt will likely need to take out loans at some point. While it’s a good idea to keep student loans, which cannot be discharged in bankruptcy, to a minimum, it will be hard to graduate at today’s tuition levels without taking on some, and if you get tired of renting, a mortgage will be out there waiting for you.
The interest rates at which you can obtain the loans will them become a critical factor in your finances, with higher rates costing you potentially tens of thousands of dollars over the life of a mortgage. Those rates of course will depend on your credit scores, and your credit scores depend on credit reports that are sent to the major credit bureaus. Often, however, those credit reports contain mistakes that negatively affect your credit. Here are the most common mistakes, and how to fix them:
The Federal Trade Commission has determined that five percent of consumers may be seeing credit scores that are 25 points below where they should be as a result of errors. By law, you are entitled to a free copy of each of your credit reports each year from each of the three major credit bureaus, so you may want to contact them and make sure your scores are not being dragged down by a mistake.
The Incorrect Social Security Number
You may know that you never make this mistake, since our social security numbers are like mental tattoos. But the loan officer who keys your number into the online loan application might very make this error. If the erroneous number belongs to someone else, that person’s credit history, including their missed payments, can become merged with yours, dragging down your scores.
Credit Card And Loan Payments
A bit over a third of your credit score is determined by your payment history, and as a result, even one late payment can do serious damage to your scores. The back-office operations at the credit card companies and loan companies, where your payment information is processed, can be the source of errors as well. These mistakes can cause your payments to be inadvertently applied to another customer’s account, causing your account to show up as past due. A review of your credit report will help you determine whether this has happened to you.
After that, you will be spending some time sending copies of you processed checks or payments to the credit card issuer or lender to prove you made payment, and they failed to credit your account. Then you’ll be contacting the credit card bureaus with proof of the payment processing error. Does all of that sound like a fun way to spend you free time?
A Mistaken Address Or Name
Sure, a mistaken address error sounds smaller and less significant than a transposed account number, but it can cause just as much damage to your credit record. Just as with social security numbers, this mistake creates some risk that your credit history will be merged with someone else’s. And if you find yourself merged with someone on whom a local or state government, or the IRS, has placed a tax lien, you may find yourself improperly on the hook for that lien.
Beyond that, insurers base your insurance rates for car and home insurance in part on you residential area. If they believe you live in a dicier neighborhood than the one you actually live in, your car and home insurance premiums may go up. One good idea in this area is to remove all of your previous addresses from your credit reports.
Obviously , if your name is listed incorrectly on your credit reports, a number of problems can arise. First, you need to always use the same name for yourself, not switching between “Bob” and “Robert,” for example, and you need to confirm that your name is correctly listed each time it is used in your credit reports.
Fraudulent Account Operation
Here we are looking less at a mistake than at identity theft, involving someone’s use of your name, Social Security number and other information to open an account and begin using it, all on your dime. Whether this has happened can be determined by examining your credit reports to see if they list a credit line that you did not open. The credit bureaus allow you to place a security freeze on your credit reports, prohibiting anyone, including you yourself, from opening any new line of credit. Retain the freeze until you have figured out what has happened. By the way, you can change your Social Security number if you believe that will help you get out from under an identity thief’s discovery and use of your current number.
Give Yourself A Financial Checkup
Checking your credit report annually, or at least more often than never, is a proper step to take to ensure that inadvertent errors, or in some cases outright fraud, is not damaging your credit history, and lowering your credit scores.